How will my joint mortgage affect my solo auto loan application?
May 5, 2014 7:37 PM Subscribe
How will my joint mortgage affect my debt-to-income ratio when I apply for a new car loan WITHOUT a co-signer? (Snowflake details inside.)
I'm planning to purchase a new 2014 Honda CRV this month. Honda is currently offering 0.9% APR on the car for "well-qualified buyers", which is better than the lowest APR my Credit Union has listed (2.9%). I haven't applied for any auto loans yet because I want to make all the applications in as short a period as possible and just did test drives on a few vehicles this weekend. But ideally I will qualify for Honda financing.
Between my trade-in and cash down payment, I'll put down about 16% of the anticipated OTD price (possibly more) and finance about $21,000.
My credit situation: I've pulled my credit reports and found nothing negative. My oldest account is from 2003 and last credit pull was 2011 mortgage. Everything has been 100% on-time. Reasonable credit utilization. Mixed types of accounts — one credit card, federal student loans (never consolidated, so shows up as 4 loans that total $5,500) and a joint mortgage (3+ years into 30 years, with my husband).
Looking at my "credit scores" on various sites, I'm 740+ across the board (I know these aren't real scores, but they're a gauge), and I paid off one car loan on the vehicle I plan to trade a couple years ago. (My research indicates having a past auto loan paid off should help with the auto industry credit scoring model?)
I earn a decent salary, but it's about half of my husband's. We've both been at our jobs for several years. We are both on the mortgage (which is less than 9% of our combined monthly pre-tax income), and he has no other debts. Consequently, I actually pay only 1/3 of the mortgage and he pays 2/3, in line with our incomes. We have not merged finances after getting married last year, and I plan to apply for the car loan solo. If they factor in the entire amount of the mortgage, plus my student loans and the new car payment, I would be at 48% DTI, compared to 25% if you only factor in the amount of mortgage I actually pay personally.
So knowing all that, here's my question... How will they factor my shared mortgage into my debt-to-income ratio when I apply for a car loan alone? What should I expect when I apply?
I'm planning to purchase a new 2014 Honda CRV this month. Honda is currently offering 0.9% APR on the car for "well-qualified buyers", which is better than the lowest APR my Credit Union has listed (2.9%). I haven't applied for any auto loans yet because I want to make all the applications in as short a period as possible and just did test drives on a few vehicles this weekend. But ideally I will qualify for Honda financing.
Between my trade-in and cash down payment, I'll put down about 16% of the anticipated OTD price (possibly more) and finance about $21,000.
My credit situation: I've pulled my credit reports and found nothing negative. My oldest account is from 2003 and last credit pull was 2011 mortgage. Everything has been 100% on-time. Reasonable credit utilization. Mixed types of accounts — one credit card, federal student loans (never consolidated, so shows up as 4 loans that total $5,500) and a joint mortgage (3+ years into 30 years, with my husband).
Looking at my "credit scores" on various sites, I'm 740+ across the board (I know these aren't real scores, but they're a gauge), and I paid off one car loan on the vehicle I plan to trade a couple years ago. (My research indicates having a past auto loan paid off should help with the auto industry credit scoring model?)
I earn a decent salary, but it's about half of my husband's. We've both been at our jobs for several years. We are both on the mortgage (which is less than 9% of our combined monthly pre-tax income), and he has no other debts. Consequently, I actually pay only 1/3 of the mortgage and he pays 2/3, in line with our incomes. We have not merged finances after getting married last year, and I plan to apply for the car loan solo. If they factor in the entire amount of the mortgage, plus my student loans and the new car payment, I would be at 48% DTI, compared to 25% if you only factor in the amount of mortgage I actually pay personally.
So knowing all that, here's my question... How will they factor my shared mortgage into my debt-to-income ratio when I apply for a car loan alone? What should I expect when I apply?
I've financed cars by myself while having a joint mortgage with my spouse (and very high credit card debt) and still managed to get an extremely low rate. Most of the time they'll just cut the mortgage payment in half to compute your DTI when you have a joint mortgage. When you cut the mortgage payment in half, how does your DTI look?
posted by rabbitrabbit at 9:22 PM on May 5, 2014
posted by rabbitrabbit at 9:22 PM on May 5, 2014
Response by poster: Thanks for the responses so far. I understand the 0.9% is to get me in the door, and that it's the best possible outcome that few people actually qualify for, but I'm trying to determine how likely it is I will. I've run the calculations on what my monthly payments will be at various higher rates and am comfortable with it.
Other than on DTI, if you factor in my whole mortgage, I'm not concerned about qualifying for the best rate. If we split the mortgage in half, that plus the new car payment would bring my DTI up to about 32%. I hope this is how they calculate it vs. putting the whole mortgage on me.
posted by ilikemethisway at 4:22 AM on May 6, 2014
Other than on DTI, if you factor in my whole mortgage, I'm not concerned about qualifying for the best rate. If we split the mortgage in half, that plus the new car payment would bring my DTI up to about 32%. I hope this is how they calculate it vs. putting the whole mortgage on me.
posted by ilikemethisway at 4:22 AM on May 6, 2014
I've financed vehicles from Honda and am currently doing so. It shouldn't matter AT ALL! Especially with a good down payment.
Our last transaction with Honda involved them giving us cash for the two vehicles we sold to them, and no down payments on our two new vehicles. We still got advantageous financing.
posted by Ruthless Bunny at 5:23 AM on May 6, 2014
Our last transaction with Honda involved them giving us cash for the two vehicles we sold to them, and no down payments on our two new vehicles. We still got advantageous financing.
posted by Ruthless Bunny at 5:23 AM on May 6, 2014
Best answer: Former car salesman here and I currently do quality assurance for loan underwriters (though I only work on real-estate secured products).
I wouldn't be the least bit surprised if, with your credit score and down payment, the DTI limit under Honda's underwriting criteria is 50% or 55%. If, however, their DTI limit is 45% (which is also common) you might be able to get them to adjust your mortgage payment by providing proof that you only pay 1/3rd of it. This would usually be in the form of cancelled checks for the past 12 payments. That is, of course, if they don't cut your mortgage payment in half automatically. They might also calculate your DTI differently than you and come up with a lower number.
The bottom line is that the dealership has finance managers who's job it is to deal with these kinds of issues. Once you've agreed on the price, mention that you're concerned about qualifying on your own but you really don't want to have to have your husband co-sign (as this will be their 1st suggested solution). They'll get the finance manager involved and he or she will work on it.
I would bet on it being a non-issue. I mean, their job is to sell you a car so, if it can be done, they'll find a way to do it.
posted by VTX at 8:05 AM on May 6, 2014
I wouldn't be the least bit surprised if, with your credit score and down payment, the DTI limit under Honda's underwriting criteria is 50% or 55%. If, however, their DTI limit is 45% (which is also common) you might be able to get them to adjust your mortgage payment by providing proof that you only pay 1/3rd of it. This would usually be in the form of cancelled checks for the past 12 payments. That is, of course, if they don't cut your mortgage payment in half automatically. They might also calculate your DTI differently than you and come up with a lower number.
The bottom line is that the dealership has finance managers who's job it is to deal with these kinds of issues. Once you've agreed on the price, mention that you're concerned about qualifying on your own but you really don't want to have to have your husband co-sign (as this will be their 1st suggested solution). They'll get the finance manager involved and he or she will work on it.
I would bet on it being a non-issue. I mean, their job is to sell you a car so, if it can be done, they'll find a way to do it.
posted by VTX at 8:05 AM on May 6, 2014
Oh, and here is the current financing deal for the CRV.
You can get 0.9% up to 60 months (1.9% for 61-72 months) but you need to have graduated from college within the last two years or will graduate within the next six months though that might only apply to the $500 rebate and not the financing portion of the promotion (details here).
Though my advice still stands, the finance manager will either make that promotion work or he'll find you the best financing deal through some other means.
posted by VTX at 8:16 AM on May 6, 2014
You can get 0.9% up to 60 months (1.9% for 61-72 months) but you need to have graduated from college within the last two years or will graduate within the next six months though that might only apply to the $500 rebate and not the financing portion of the promotion (details here).
Though my advice still stands, the finance manager will either make that promotion work or he'll find you the best financing deal through some other means.
posted by VTX at 8:16 AM on May 6, 2014
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Note that these teaser rates are often for three-year terms, with higher rates for longer, more typical terms. Even at 0.9%, the monthly payment can be high on a three-year loan.
posted by Blazecock Pileon at 8:37 PM on May 5, 2014